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Monday, May 10, 2010

The end of capitalism

Fresh from its successful bailouts of GM (bankrupt), Fannie Mae (-$16.3 billion in Q1), and Freddie Mac (-$6.7 billion in Q1), the Federal Reserve is joining the ECB, the BoC, the BoE, and the SNB in an attempt to preserve the European Union:
European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases as they spearheaded a global drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro....

The Federal Reserve is going to reopen a program set up during the financial crisis, to make sure foreign banks have the dollars they need, the European Central Bank announced late Sunday. The Fed will ship dollars overseas through the Bank of Canada, the Bank of England, the ECB and the Swiss National Bank. The Bank of Japan will be considering similar measures soon, the ECB said. The facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and other financial centers, the ECB said in a statement on its web site.
This isn't about economics or the euro. This is about preventing the banks that hold sovereign debt from going under and maintaining the geopolitical order that presently sustains the global financial system. And, of course, it's not going to work. It cannot since it is literally designed to do nothing more than soothe those problematic animal spirits when the core problem is the magnitude of the debt. The problem has always been rooted in debt. And now that genuine capitalists have no interest in purchasing Greek debt at any price and are increasingly unwilling to purchase Portuguese debt, that leaves the money planners to step in and attempt to fill in the gap with their ability to create money by "expanding the balance sheet".

Once this belated band-aid fails in a few months, the next pitch will be to replace the various currencies with the global currency that the Economist once described as "the Phoenix". This is an appropriate title because there should be no shortage of ashes from which the phoenix can rise.

By the way, don't get too excited about the big, but short-term Wall Street rally that is certain to commence. No market goes straight down or straight up. And big up days are indicative of bear markets, not bull markets. This is just the reactive wave and is an artifact of the massive government intervention.

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